The Rise of the Cities: Cherry-Picking Approach a Strategic Imperative

Deirdre Coleman investigates the gazelle-like pace of urbanization in the emerging markets and the key drivers that determine investment priorities and inform tailored local approaches.

One third of the world’s population – 2.6 billion people – live in cities that are located in the emerging markets. By 2030, the number of emerging market urban-dwellers will skyrocket by another 1.3 billion which is more than the total population of today’s developed market cities. In sharp contrast, cities in developed markets will add only 100 million new residents in the next 20 years1.

The surge in the number and size of emerging market cities alongside the burgeoning number of middle-class households with increasing per capita disposable income is opening up a huge opportunity for pharmaceutical companies seeking new hunting grounds that can deliver growth. The megacities often highlighted in the media account for just a fraction of the opportunity; cities with fewer than 5 million inhabitants already represent 83 percent of the urban residents in the emerging markets and are growing more rapidly than the megacities.

A “cities strategy” is crucial therefore to growth in emerging markets and successful pharma companies will be those that embrace this challenge. According to Dr Fred Schaebsdau, SVP Global Strategy and Business Development, Roche: “One of the first steps in making the decision about whether or not to become active in an emerging market city and developing an appropriate entry strategy is to understand the nature of the various cities involved and to avoid going after the obvious which is the most densely populated; by applying selective criteria you can scope out new areas for growth and prioritize markets that can deliver higher returns – cherry-picking the best opportunities as they fit in with overall global strategy. A key criterion for us is the per capita income as below a certain level, a person does not have the discretionary income to become a patient. Next, we look at the incidence of the disease, but this cannot be considered in isolation. For example, India’s diabetic population is 37 million strong and growing rapidly. WHO estimates that diabetes mortality could increase 35 percent by 2015. However, when you compare India and China, India may have a higher incidence rate but China’s per capita income & infrastructure is more favourable. We also look at the overall macroeconomic picture; the nation’s GDP, which allows it to invest in healthcare, the number of hospital beds and the number of new physicians”.

We have to train physicians so that they, in turn, can teach patients when and how to test, which involves substantial resource commitment on our part.

“Another driver is international training, education levels of physicians and adherence to international guidelines; in India, there is a culture of sending physicians abroad for training and their subsequent exposure to standardised treatment regimens as set out by the International Diabetes Federation is higher. Chinese physicians and even Key Opinion Leaders may not be adhering to these standards as they pertain to screening and blood sugar testing. Therefore, we have to train physicians so that they, in turn, can teach patients when and how to test, which involves substantial resource commitment on our part. We also look at the education level of the patient as better educated patients have higher awareness and are more likely to get screened, taking ownership of their condition and are more compliant”, says Schaebsdau.

Selective Approach

Crafting and implementing strategies that emphasise cities rather than just regional or national markets will require focus from senior leaders.

Long term profitable growth will require a portfolio of target cities and distinct go-to-market models to serve distinct local needs. These business models need to address local idiosyncrasies and should encompass sales force allocation, distribution relationships, local partner management, logistics, customer service and the organisation of these activities. Emerging cities are changing so rapidly that regular refinement of these models is necessary. Planning must include an explicit evaluation of the costs and benefits of serving different cities. As demand unfolds across a massive number of emerging market cities, addressing this growth challenge with the appropriate capabilities for managing complexity and risk is critical to avoiding any costly missteps.

“Concentrating on the markets where you can deliver the most impact is critical as you can’t be in all regions, in all therapeutic areas; you need to be selective in the markets you go after. Affordability and access are challenges and downward pressure on pricing is forcing us to look at innovative and adaptive strategies unique to local emerging market conditions. Crafting and implementing strategies that emphasise cities rather than just regional or national markets will require focus from senior leaders, and will require a level of responsiveness and forward-planning that stimulates faster, more profitable growth”, concludes Schaebsdau.

Capturing the tremendous growth opportunities presented by the emerging market cities will require an approach that aligns pharma leaders’ city coverage with the most attractive opportunities coupled with the ability to adapt their business models to reach further and deeper into these markets.

Dr. Fred Schaebsdau will be presenting more on emerging markets city strategies and other key growth areas at next year's Growth Markets 2014 conference in Berlin in February. For more information or to see which other industry leaders and strategists will be in attendance, visit the official website.